ECON 201: exam 2 study guide

Given the following consumption of fixed capital (depreciation) $1,257 Rents $120 indirect business taxes less subsidies $682 social security contributions $800 corporate income taxes $500 Undistributed corporate profits-retained earnings $274 Transfer payments $2,000 Personal income taxes $1,500 Compensation of employees (wages) $6,650 Net interest $571 Profits - (corporate and Proprietors Income) $1,668 Personal Consumption expenditures $7,000 Gross private domestic investment $1,855 Government purchases $1,843 Net exports (X-M) $300 Statistical discrepancy $50 What is GDP (Expenditure Approach)?

a) $10,998

An example of "investment" in computing real GDP using the expenditure approach is the purchase of a) a new set of tools by auto mechanic, for use in repairing cars b) a 100 year old house by a married couple c) 100 shares of IBM stock d) computer chips by Dell to put in their personal computers

a) a new set of tools by auto mechanic, for use in repairing cars

All of the following are included in gross private domestic investment expenditures EXCEPT a: a) business's purchase of another company's stock b) a retail store's purchase of shoes to add to its inventory c) business's purchase of a fleet of cars d) household's purchase of a new house

a) business's purchase of another company's stock

The three types of unemployment are a) frictional, structural, and cyclical b) voluntary, part-time, and cyclical c) frictional, part-time, and involuntary d) voluntary, involuntary, and structural

a) frictional, structural, and cyclical

As currently calculated, the CPI tends to overstate the true inflation rate because a) it fails to correctly measure quality changes for some products b) the market basket selected is inappropriate c) we cannot know what the true inflation rate is d) the market basket fails to weight housing costs sufficiently

a) it fails to correctly measure quality changes for some products

Gross domestic products is the total _______ produced within a country in a given time period. a) market value of all final goods and services b) market valued of all final and intermediate goods and services c) market value of all goods and services d) amount of final and intermediate goods and services

a) market value of all final goods and services

Depreciation is subtracted from gross domestic product to determine directly a) net domestic product b) national income c) consumption expenditures plus investment expenditures plus government expenditure plus net exports d) disposable income

a) net domestic product

The productivity growth slowdown refers to the: a) period during the 1970s and for some years afterwards b) situation in foreign nations but not in the United States c) years during the 1990s d) years following the 1930s depression

a) period during the 1970s and for some years afterwards

Potential GDP is: a) the value of production when all the nation's resources are fully employed b) the maximum GDP that an economy actually achieves throughout its entire history c) the level of GDP achieved during periods when 100% of the labor force is employed d) a goal that can never be achieved by the economy

a) the level of GDP achieved during period when 100% of the labor force is employed

Intermediate goods are excluded from GDP because: a) their inclusion would involve double counting b) they represent goods that have never been purchased so they cannot be counted c) the premise of the question is incorrect because intermediate goods are directly included in calculating GDP d) their inclusion would understate GDP

a) their inclusion would involve double counting

In the computation of GDP, Social Security payments count as a) transfer payments and are not included in GDP b) transfer payments and are included in GDP c) government expenditure on goods and services and are included in GDP d) government expenditure on goods and services and are not included in GDP

a) transfer payments and are not included in GDP

In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate? a) 5.0% b) 10.0% c) 7.7% d) 7.1%

b) 10.0%

Suppose there are currently 100 people unemployed, 1500 people employed, and 2000 people in the working age population. The labor participation rate equals 100 times a) 100/600 b) 1600/2000 c) 100/1500 d) 1500/2000

b) 1600/2000

If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is a) 7.1% b) 9.1% c) 10% d) 6.6%

b) 9.1%

If Nike, an American Corporation, produces sneakers in Thailand this would: a) count as part of U.S. GDP since it is a U.S. corporation b) add to Thailand's GDP but not to U.S. GDP C) account for both Thailand's GDP and U.S. GDP d) add to neither U.S. GDP nor Thailand's GDP

b) add to Thailand's GDP but not to U.S. GDP

Discourage workers _________ counted as officially unemployed because they ____________. a) are not; are not qualified to work b) are not; are not actively seeking work c) are; are still in the labor force d) are; are not working

b) are not; are not actively seeking work

Depreciation is defined as the: a) increase in the stock of capital due to investment by firms b) decrease in the stock of capital due to wear and tear c) increase in the stock of capital due to wear and tear d) decrease in the stock of capital due to investment by firms

b) decrease in the stock of capital due to wear and tear

Business cycles: a) are unpredictable due to political upheavals and global markets b) follow a pattern of trough, expansion, peak, and recession c) are more volatile during a Republican administration d) are all identical in duration over the last century

b) follow a patter of trough, expansion, peak, and recession

When a student finishes college and begins looking for work a) frictional and cyclical unemployment increase b) frictional unemployment increases c) structural unemployment increases d) cyclical unemployment increases

b) frictional unemployment increases

Net investment equals a) the total quantity of plant, equipment and buildings b) gross investment minus depreciation c) capital stock minus depreciation d) gross investment/depreciation

b) gross investment minus depreciation

Which of the following is NOT part of the expenditure approach to measuring GDP? a) personal consumption expenditures b) net interest c) net exports of goods and services d) gross private domestic investment

b) net interest

Marginally attached workers fall into which of the following population categories? a) unemployed b) not in the labor force c) labor force d) employed

b) not in the labor force

Which of the following is NOT included in real GDP? a) production of goods that do not last more than one year, such as gasoline b) production in the home c) production of goods that last more than one year, such as television sets d) production of services, such as the services of doctors

b) production in the home

Substitution bias in the CPI refers to the fact that the CPI a) substitutes quality changes whenever they occur without taking account of the cost of the quality changes b) takes no account of the substitution of goods by consumers when relative prices change c) takes into account the substitution of goods by consumers when relative prices change d) substitutes relative prices for absolute prices of goods

b) takes no account of the substitution of goods by consumers when relative prices change

Pollution is a by-product of some production processes, so on this count real GDP as measured a) is adjusted downward to take into account the pollution b) tends to overstate economic welfare c) is adjusted upward to take into account the expenditures that will be made in the future to clean up the pollution d) tends to understate economic welfare

b) tends to overstate economic welfare

Potential GDP is a) the level of GDP not adjusted for price changes b) the maximum amount of GDP that can be produced ceteris paribus assuming all resources are fully and effectively employed in the economy c) another name for real GDP d) always different from real GDP

b) the maximum amount of GDP that can be produced ceteris paribus assuming all resources are fully and effectively employed in the economy

Real GDP decreases during a) the movement from trough to peak b) the movement from peak to trough c) a decrease in unemployment d) the movement from below potential GDP back to potential GDP

b) the movement from peak to trough

The employment-to-population ratio is defined as a) total employment divided by the labor force then multiplied by 100 b) total employment divided by the working-age population then multiplied by 100 c) total employment divided by labor hours then multiplied by 100 d) the labor force divided by the working-age population then multiplied by 100

b) total employment divided by the working-age population then multiplied by 100

The ____________ is calculated as the number of people _________ divided by the labor force multiplied by 100. a) employment rate; employed b) unemployment rate; unemployed c) employment-to-population ratio; in the working age population d) employment-to-population ratio; unemployed

b) unemployment rate; unemployed

The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services a) consumer living in cities with a population greater than 100,000 b) urban consumers c) urban wage earners and clerical workers d) all consumers

b) urban consumers

Economists distinguish real GDP from nominal GDP to: a) measure the change in nominal interest rates b) determine whether economic welfare has changed c) determine whether the government sector is growing d) determine whether real production has changed

d) determine whether rel production has changed

Given the following: consumption of fixed capital (depreciation) $1,257 Rents $120 Indirect business taxes less subsidies $682 Social security contributions $800 Corporate income taxes $500 Undistributed corporate profits-retained earnings $274 Transfer payments $2,000 Personal income taxes $1,500 Compensation of employees (wages) $6,650 Net interest $571 Profits - (corporate and proprietors income) $1,668 Personal consumption expenditures $7,000 Gross private domestic investment $1,855 Government purchases $1,843 Net exports (X-M) $300 Statistical discrepancy $50 What is Net Domestic Income at factor prices?

c) $9,009

Deflation represents: a) a recession b) an increase in the unemployment rate c) a reduction in the aggregate price level d) a reduction in output

c) a reduction in the aggregate price level

The underground economy exists for all of the following reasons EXCEPT the a) avoidance of government regulation b) production of illegal goods c) desire to maintain accurate records of economic transactions d) avoidance of taxes

c) desire to maintain accurate records of economic transactions

The business cycle refers to a) changes in the level of employment b) changes in the level of the stock market c) fluctuations in the level of real GDP around potential GDP d) changes in the level of nominal GDP

c) fluctuations in the level of real GDP around potential GDP

Frictional unemployment comes about because of a) a general economic slowdown b) friction between labor and management c) normal labor market turnover d) a mismatch between skills and available jobs

c) normal labor market turnover

During a recession, the: a) number of discouraged workers decreases b) employment-to-population ratio increases c) number of marginally attached workers increases d) unemployment rate decreases

c) number of marginally attached workers increases

The largest component of GDP in the expenditures approach is: a) government expenditure on goods and services b) gross private domestic investment c) personal consumption expenditures d) net exports

c) personal consumption

In the expenditure approach to GDP, the largest component is a) net exports b) government expenditure on goods and services c) personal consumption expenditures d) gross private domestic investment

c) personal consumption expenditures

The currently used method for calculating the CPI a) accounts for people increasing consumption of a good that fall in relative price b) has no effect on government expenditures c) probably overstates inflation by about 1 percentage point d) none of the above answers are correct

c) probably overstates inflation by about 1 percentage point

The base-year method of calculating real GDP compared a) quantities produced in different years with the prices that prevailed during the year in which the output was produced b) prices at different points in time using a sample of goods that is representative of goods purchased by households c) quantities produced in different years using prices from a year chosen as a reference period d) the quantities of goods produced in consecutive years using prices in both years and averaging the percentage changes in the value of output

c) quantities produced in different years using prices from a year chosen as a reference period

GDP declines during a) a decrease in unemployment b) the movement from below potential GDP back to potential GDP c) the movement from peak to trough d) the movement from trough to peak

c) the movement from peak to trough

When calculating GDP, underground economic activity is: a) an aspect of the quality of life, such as health and life expectancy b) the production of goods and services in the home c) the part of the economy purposely hidden d) that portion of the time when we are enjoying leisure activities and not producing marketable goods

c) the part of the economy purposely hidden

The labor force is defined as a) people with full time jobs b) all people capable of work c) workers with jobs and unemployed workers d) all of the above answers are correct

c) workers with jobs and unemployed workers

Suppose the CPI last year is 121 and CPI this year is 137. The correct method to calculate the inflation rate is a) 137 x 121 = 258 b) (137/121) x 100 = 113.2 c) (137 - 121)/100 = 0.16 d) [(137 - 121)/121] x 100 = 13.2

d) [(137 - 121)/121] x 100 = 13.2

The use of purchasing power parity prices: a) weakens the validity of cross country comparisons of economic welfare b) decreases the real GDP per person statistics published by the International Monetary Fund c) increases the amount by which U.S. GDP is larger than that of any other nation d) accounts for differences in the prices of the same goods in different countries when measuring real GDP

d) accounts for differences in the prices of the same goods in different countries when measuring real GDP

Real GDP can be criticized as a measure of economic welfare because it: a) does not take account of the degradation of environmental quality b) does not include the value of products produced in the household c) does not include leisure time available to a society d) all of the above answers are correct

d) all of the above answers are correct

Which of the following changes causes reported GDP to increase when, in fact, total production is unchanged? a) the legalization of previously illegal activities b) a shift from household production to market production c) Neither of the above will cause reported GDP to increase when total production does not change d) both answers A and B are correct

d) both answers A and B are correct

The largest component of national income is a) rental income b) proprietors'income c) corporate profits d) compensation of employees

d) compensation of employees

Goods that are produced this year, stored in inventories, and then sold to consumers next year a) count in both this year's and next year's GDP b) are not counted as a part of GDP c) count in next year's GDP d) count in this year's GDP

d) count in this year's GDP

The difference between gross investment and net investment is a) consumption b) inflation c) initial capital d) depreciation

d) depreciation

The unemployment rate measures the percentage of a) people who want full-time jobs, but can't find them b) the working age population that can't find a full-time job c) employment-to-population ratio; in the working age population d) employment-to-population ratio; unemployed

d) employment-to-population ratio; unemployed

All of the following are indirect taxes EXCEPT: a) liquor excise taxes b) cigarette sales taxes c) taxes on utility bills d) income taxes

d) income taxes

The labor force participation rate is calculated as the a) labor force divided by the number of persons employed then multiplied by 100 b) labor force divided by the unemployment rate then multiplied by 100 c) number of persons unemployed divided by the labor force then multiplied by 100 d) labor force divided by the working age population then multiplied by 100

d) labor force divided by the working age population then multiplied by 100

When using the income approach to measure GDP, the largest share of GDP generally consists of: a) capital income b) interest income c) indirect taxes d) labor income e) profits

d) labor income

Because of the biases in calculating the CPI, actual inflation is a) more than the measured inflation rate by about 1 % per month b) more than the measured inflation rate by about 1% per year c) accurately measured d) less than the measured inflation rate by about 1% per year

d) less than the measured inflation rate by about 1% per year

Personal consumption expenditures include all of the following EXCEPT spending on a) consumer services b) consumer durable goods c) consumer nondurable goods d) new housing

d) new housing

All of the following household expenditures are included in consumption expenditure EXCEPT a) purchase of a new purse b) payment to a dentist for filling a tooth c) purchase of hair styling d) purchase of corporate stock

d) purchase of corporate stock

Two methods of measuring GDP are a) the goods approach and the services approach b) the saving approach and the investment approach c) the income approach and the receipts approach d) the income approach and the expenditure approach

d) the income approach and the expenditure approach

Which of the following statements is INCORRECT? a) the labor-force participation rate is the labor force divided by the working-age population then times 100 b) the labor force is equal to the number of people employed plus the number of people unemployed c) the unemployment rate is the number of persons who are unemployed divided by the labor force then times 100 d) the working age population includes everyone over the age of 16

d) the working age population includes everyone over the age of 16